As prices for used and new cars rise, you may be wondering how to get the most value from your current vehicle. One option you might consider is refinancing. Doing so can lower your monthly payment, which can give you more flexibility in your overall budget.
But refinancing is dependent on multiple factors, which can include features relating to your vehicle. One of these can be the car’s mileage. So, if your car has high mileage, you may wonder whether your loan application will be successful. Yes, refinancing a car with high mileage is possible but can be difficult. Below we highlight some of the key facets of refinancing a car with high mileage.
Key Points
• High mileage can lead to a high loan-to-value ratio, making refinancing less appealing to lenders.
• Refinancing a high-mileage car, when possible, may reduce monthly payments and interest rates, especially if you’ve built your credit score.
• Being upside down in a loan (owing more on the car than its current value) increases financial risk, particularly if the car fails or needs replacement.
• Regular maintenance and following service recommendations can extend the life of a high-mileage car.
• Assess if maintenance costs exceed the car’s value; consider trading in or selling if the numbers don’t add up.
Difficulty of Refinancing a Car With High Mileage
A potential lender typically analyzes several factors when reviewing your application for a car loan refinance, one of which is your loan-to-value ratio (LTV). This number analyzes how much you owe vs. how much the car is worth.
The lower your LTV is, the better. A car with high mileage may have a low appraisal value, and that can push the LTV ratio up to a percentage that the lender may not be comfortable with.
That’s because a car with high mileage can become a liability to lenders, especially if they’re concerned that the car won’t outlast the life of the loan.
A lender may also be worried about car value. If the loan is worth more than the value of the car, then the loan is considered “upside down” or “underwater”. In that case, it may be hard to find a lender to refinance your car. Your interest rate on the loan may also be higher.
But high mileage doesn’t necessarily mean that your car has little life left. Overall, vehicle condition plays a role in your application profile, too, as does your own creditworthiness.
Recommended: Determining a Car’s Value with a Salvage Title
What’s Considered High Mileage on a Vehicle?
In the past, the rule of thumb was that high mileage was anything above 100,000 miles. But that isn’t necessarily the case any longer, thanks to new technology.
Now, cars can be driven well beyond the 200,000-mile mark, especially if they’re in good condition. But while 200,000 miles may be a benchmark for the “average” car life expectancy now, high mileage is typically measured in how many miles you drive per year.
The average driver puts 13,000 to 14,000 miles on their car a year. If you put more mileage on your car each year, then your car may be considered a high-mileage vehicle.
High mileage is an issue for lenders because it may signify more wear and tear on the vehicle. Your lender may also have specific guardrails when it comes to how much mileage it will consider for refinancing applications, while others may have general questions about the condition of your vehicle.
Recommended: Luxury Cars Ranked by Maintenance
What to Know When Considering a High-Mileage Refinance Loan
Refinancing your auto loan can make sense in some cases, including:
• If you’ve built your credit score to the point at which you’ll have a lower interest rate on your loan
• If it will lower your monthly payments.
• To shorten the life of your loan, which may lower the amount of interest you pay over the life of the loan
Things to Consider When You’re Thinking of Refinancing
Knowing why you want to refinance can help you assess whether refinancing is the best idea for you. Keep in mind that refinancing a high-mileage car may mean that the new interest rates you’re offered will actually be higher than your current interest rate, which may not make refinancing worth it.
Weighing the pros and cons of refinancing is also important. Refinancing can be beneficial if it lets you pay less over the life of the loan or reduces monthly payments you can’t afford by extending your loan term. But if it threatens to make you go upside down on your loan, it’s likely not a good idea.
Going upside down on your loan, as it’s called in auto loan terminology, means that you owe more than your car is worth, and it’s one of the dangers of refinancing a high-mileage car. It can put you in a financially vulnerable position, especially if your car does become unusable at any point through your loan. If this were to happen, you would still be responsible for paying down your loan — and you would also need to somehow budget for a new mode of transportation.
Finally, it can also be a good idea to think of next steps: How long do you plan to have your current car, and how will you finance a new one, when and if you need one?
Recommended: Does Refinancing a Car Extend Your Loan Term?
Lenders Evaluate Creditworthiness
In addition to checking out the condition of your vehicle, a lender will also assess you as a potential borrower, using your credit score as one way to evaluate your creditworthiness. If your credit score has been positively impacted since your initial car loan, you may find a lower interest rate on a refinance. But if your credit score is similar or went down, you may find that refinancing doesn’t necessarily make financial sense, and it may make more sense to find wiggle room elsewhere in your budget.
Recommended: Which Credit Bureau Is Used for Most Auto Loans
Avoid Going Upside Down on a Car Loan
Refinancing a car can be risky if you’re not careful. Here are ways to avoid going upside down on a car loan:
• Minimize your loan length. This may mean you’re paying more money each month, but if a refinance gives you a lower interest rate, then you’ll save money in the long term.
• Keep your car in good condition. Follow your manufacturer’s recommendations for servicing, including replacing the battery, to avoid letting a minor issue become a major issue.
• Pay off your loan early. If you have the means to do so, pay off your car loan early before its ultimate due date. Make sure your lender doesn’t have any prepayment penalties.
Some car dealers may offer you incentives to trade in your old car for a new car — even if you still owe money on your current car. This can be financially risky. While your loan gets paid off on the old car, your loan on the new car will include what was still owed on the old car loan, raising the overall loan amount and setting up the potential for you to get even deeper in debt.
You may also want to assess whether you really need a car at all. In some cases, car owners realize that they can sell their financed car for more than what they owe on the car. Of course, this depends on whether you can live without a car or if you’ll still have access to transportation if you need it. In short, consider all options and assess how the financial moves you make today may impact your finances tomorrow.
In all scenarios, crunch the numbers, consider what-ifs, and assess next steps.
Recommended: Financing a 10-Year-Old Car: What Are My Options?
The Takeaway
A car refinance can be beneficial. It can lower your current interest rate and can free up money in your budget. But because refinancing a car with high mileage can be tricky, it may lead to you spending more money and more time paying down the loan. It’s a good idea to look at your overall financial picture to determine if refinancing is your best option.
If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.
FAQ
What is considered high mileage?
Every lender has a different definition of what high mileage is, but many use the 100,000 range as a benchmark. Other lenders may look more closely at how many average miles you’ve driven in a year. It can be a good idea to research or ask a lender about its policies prior to applying to refinance your car.
Is it worth it to refinance a high-mileage vehicle?
Refinancing a high-mileage vehicle may be right for you, especially if you can refinance your high-mileage vehicle at a lower rate, or you refinance with the goal of paying down your car loan in a shorter period of time than the life of your current loan.
Is it possible to refinance a high-mileage car?
Refinancing a high-mileage car is possible, but it generally depends on several factors, including the terms of your current loan, your vehicle’s condition, and your own credit score and credit history, as well as other possible factors.
Will refinancing your vehicle put you upside down?
Refinancing could technically put your car loan upside down. Putting a down payment on your refinance can lessen any negative equity. If you calculate your potential refinance beforehand, you can assess whether you will owe more than the car is worth. On the flip side, an auto refinance may help you get out of an upside-down loan by lowering your interest rate, giving you the opportunity to put more money to go toward your principal, and shortening your loan term. Again, crunching the numbers can help you assess your situation.
What other options are available besides refinancing?
There may be other options besides refinancing. These include selling your high-mileage car, which could be tough, and if you still need a vehicle, you may have to pay for a new loan plus paying back your previous loan. You could cancel any loan add-ons, such as service agreements or extended warranties, which can increase the cost of your loan. Also, prioritizing paying down your current loan — paying more than the minimums or earmarking any extra money toward your car loan principal — can help you pay less interest overall during the life of the loan.
Photo credit: iStock/bymuratdeniz
SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SOALR-Q325-004